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Value risks

168 Comments · Business outsourcing

Whether the rationale is cost savings or business transformation, an outsourcing project is undertaken to create value for the business process outsourcing (BPO) buyer.

With the myriad uncertainties inherent in any complex BPO deal, extracting anticipated value can be a challenge.

This risk can be mitigated through several techniques, most of which center on managing the projected outcomes.

For instance, if the outsourcing deal is expected to save the BPO buyer $1 million during the first year, the project management team (PMT) should manage to that figure.

Adding additional people or hiring consulting firms may be a temptation as project difficulties mount.

This temptation can be resisted if the PMT is committed to hitting the cost savings targets established for the project.

Another technique for mitigating project value risks is to empower the PMT to constantly seek opportunities to leverage the competencies that develop between the buyer and vendor firms.

This tactic, often referred to as “pressing the value model,” will expand the reach of vendor competencies and those jointly developed through the BPO relationship.

For instance, firms that outsource payroll may find that additional advantages can be gained by turning over other back-office functions to the same vendor.

When the PMT presses the value model, it seeks to identify other noncore processes that may be suitable for outsourcing under an existing buyer-vendor relationship umbrella.

Value risks are inherent in any project as people strive to work together to achieve future organizational states.

Working with international vendors presents higher-value risks than working with domestic vendors in that the extent of potential value is often overstated by the foreign vendor and can take longer than expected to achieve.

Mitigation of these risks centers on the effectiveness of service level agreements (SLA) negotiation, implementation, and management.

The project management plan can also be an important tool for mitigating value risk because it specifies tasks and responsible parties that can be held accountable on a one-to-one basis.

Critical process flows should not be allowed to linger out of compliance for long periods without explanation and plans for remedy.

The PMT should have provisions in place for emergency meetings in the event that value goals are not being reached.

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